In the world of commercial contracts, the arbitration clause is often relegated to the “boilerplate” section standard language that gets copied and pasted without much thought. For legal professionals, this is a dangerous oversight. A poorly drafted arbitration clause can transform from a mechanism for efficient dispute resolution into a source of its own protracted, expensive litigation. At our firm, we have seen firsthand how ambiguities and omissions in these clauses lead to procedural battles over where, how, and even whether arbitration can proceed, often before the substantive dispute is even addressed.

Mistake 1: The “Agreement to Agree” An Incomplete Clause

The Error: Using vague, non-operative language like “any disputes shall be resolved by arbitration” without specifying the critical procedural rules.
The Risk: The clause may be deemed unenforceable for lack of mutual assent or certainty. If a dispute arises, the parties must then negotiate the missing terms or resort to court to have them imposed, defeating the entire purpose.
The Fix: Always include the essential “Who, What, Where, and How.”

• Rules: Designate administering institution rules (e.g., ICC, LCIA, SIAC, or ad-hoc rules like UNCITRAL).
• Seat (Legal Place): Specify the juridical seat of arbitration. This governs the procedural law and courts’ supervisory jurisdiction.
• Number of Arbitrators: State clearly (one or three).
• Language: Define the language of the proceedings.

Sample Language: “Any dispute arising out of or in connection with this contract shall be finally settled under the [Rules of the International Chamber of Commerce] by one or more arbitrators appointed in accordance with said rules. The seat of arbitration shall be [London, England]. The language of the arbitration shall be English.”

Mistake 2: Neglecting the “Seat” vs. “Venue” Distinction

The Error: Confusing or using interchangeably the legal seat (or place) of arbitration with the physical venue for hearings.
The Risk: The seat determines the procedural law and the national courts that will have supporting (e.g., enforcing interim measures) and supervisory (e.g., setting aside awards) jurisdiction. Misidentifying this can lead to unexpected and unfavorable procedural law applications and enforcement challenges.
The Fix: Deliberately and clearly define the seat. You can then specify that hearings may be held at any convenient venue, distinct from the seat.

Sample Language: “The arbitral proceedings shall be seated in [Singapore]. The tribunal may, however, hold hearings, meetings, and deliberations at any other location it considers appropriate.”

Mistake 3: Overly Broad or Unclear Scope of Disputes

The Error: Using undefined terms like “all disputes” or “in connection with” without considering if you intend to include pre-contractual (misrepresentation) or tort claims.
The Risk: Scope disputes lead to “competence competence” battles, where parties argue over the arbitrator’s very jurisdiction. This creates delay and expense at the outset.
The Fix: Define the scope with precision tailored to the contract.

Broad but Defined: “Any dispute, controversy, or claim arising out of, relating to, or in connection with this contract, including regarding its existence, validity, interpretation, breach, termination, or consequences thereof.”

Narrow: “Any dispute arising under this contract concerning the interpretation of Section 5.0.”

Mistake 4: Failing to Address Multi-Party or Multi-Contract Complexities

The Error: Using a standard two-party clause in a transaction involving multiple related parties (e.g., parent companies, guarantors) or a suite of interconnected contracts.
The Risk: Inefficiency, inconsistency, and the possibility of conflicting awards. You may be forced into separate, parallel proceedings over the same factual matrix.
The Fix: Plan for complexity at the drafting stage.

• Consolidation: Include an express provision allowing for the consolidation of related arbitrations.
• Joinder: Provide a mechanism for additional necessary parties to be joined to the arbitration.
• Cross-Contract Uniformity: Ensure related contracts (e.g., main agreement, guarantee, escrow) use identical arbitration clauses to avoid jurisdictional conflicts.

Mistake 5: Ignoring Process and Timeline Efficiency

The Error: Assuming institutional rules alone will guarantee a fast process.
The Risk: Arbitration can become as slow and costly as litigation if not properly managed.
The Fix: Build efficiency into the clause.

• Timetable: Consider stipulating a shortened timeline for the appointment of arbitrators and the rendering of the final award.
• Document-Only: For smaller claims, specify a documents-only procedure without a hearing.
• Escalation Clauses: Consider requiring good-faith negotiations or mediation as a precondition to triggering arbitration, to filter out resolvable disputes.

Mistake 6: Creating Unworkable Appointment Mechanisms

The Error: Designing an overly complex or self contradictory method for appointing arbitrators (e.g., “the arbitrator shall be a retired judge who is also a licensed engineer”).
The Risk: Appointment failure. If the mechanism breaks down, it requires court intervention (in the seat) to appoint the tribunal, causing significant delay and cost.
The Fix: Keep it simple and default tested. Rely on the designated appointing authority within your chosen institutional rules as the default backstop. Ensure any specific qualifications requested are realistic and that the pool of potential arbitrators is sufficiently large.

Mistake 7: Forgetting the Endgame: Enforcement

The Error: Drafting a clause that leads to an award that may be difficult to enforce under the New York Convention.
The Risk: A “hollow” victory. The winning party may be unable to collect because the award is successfully challenged at the seat or refused enforcement in the jurisdiction where assets are located.
The Fix: Draft with enforcement in mind.

• Choose a Pro-Arbitration Seat: Select a seat in a jurisdiction with a modern arbitration law and a non interventionist court tradition (e.g., England, Singapore, Switzerland, Hong Kong).
• Finality: Expressly exclude any appeal to national courts on points of law, unless such appeal is specifically desired (which is rare).
• Waivers: In applicable jurisdictions, consider including explicit waivers of sovereign immunity from enforcement, if dealing with state entities.

Conclusion: From Boilerplate to Strategic Tool

The arbitration clause is not mere boilerplate; it is a pre negotiated dispute resolution manual. A well drafted clause provides certainty, efficiency, and enforceability. A poorly drafted one is a liability that guarantees further conflict.

The single most important step you can take is to stop copying and pasting. Treat each contract as unique. Consider the parties, the nature of the deal, the likely disputes, and the location of assets. By investing thoughtful attention at the drafting stage to avoid these common mistakes, you provide your clients with a robust framework that protects their interests long before any dispute arises.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The law of arbitration is complex and jurisdiction-specific. You should consult with qualified legal counsel to draft an arbitration clause tailored to your specific contract and circumstances.

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